NordMart: The Case of Conflicting Corporate Strategy

I read recently about a credit union that hired a new CEO. The article extolled the virtues of the CEO’s planned strategy: a dual focus on cost control and high-touch service. In fact, the CEO was quoted as suggesting that the credit union will operate “like a combination of Walmart and Nordstrom.” My first reaction was…”What?!”

I read the article, and that specific quote, again. Yep. It said, “the credit union will operate like a combination of Walmart and Nordstrom.”

This, to put it bluntly, is a strategy with a high risk of average to poor performance.

To illustrate, let’s take a simple look at both Walmart and Nordstrom. Walmart, for the unfamiliar, is an organization based on supply chain efficiency. Here is an excerpt from a case study published by the ICFAI Center for Management Research that describes Walmart’s operational focus:

The company has always focused on improving sales, constantly reducing costs, adopting efficiency distribution and logistics management systems and using innovative information technology tools.

This, in effect defines Walmart’s supply chain focus. Consider this from the same article…

Supply chain management is moving the right items to the right customer at the right time by the most efficient means.

Now for Nordstrom. The description the company itself uses on its website is telling:

Nordstrom, Inc. is one of the nation’s leading fashion specialty retailers.

And consider this blurb from the blog of a former employee:

Helping to differentiate Nordstrom and continually draw customers out to the regional malls is the fairytale experience. Nordstrom thrives on providing legendary experiences through unbelievable customer service, which result in customer folklore and the most powerful word-of-mouth marketing possible.

Now to why the combination of Nordstrom/Walmart strategies is a recipe for poor performance. Each operates a distinctly different business model. Furthermore, the value proposition of each model requires distinctly different responses to customer needs. Finally, the underlying cost structures for each model are at odds with one another.

The problem with combining Walmart and Nordstrom is that the execution strategies required to succeed in one undermine the ability to succeed in the other. In trying to execute both models concurrently you really end up with a sort of “strategy averaging” whereby you excel only where the points of strategic execution are the same – and there are few with regard to Walmart and Nordstrom. The bottom line is that adopting conflicting strategies is a path to escalating costs, poor customer service, or both.

Our perspective here at Glatt Consulting is that credit unions need to pick a defined context and work for excellent execution within that context.

Within the framework of this philosophy, then, it is far better for a credit union to say they want to be “like Walmart” and then work hard to wring every extraneous expense out of the operating environment so that prices/rates routinely best the competition. Also within the framework of this philosophy, it is far better for a credit union to say they want to be “like Nordstrom” and then work hard to deliver service that routinely rates above the competition – and that people are willing to pay a little more to experience. Within the framework of context-based strategy, it is not better to try to be both high-service and low-cost.

The issue of combining conflicting strategy is not unique to this credit union. Many, if not most credit unions across the country try to balance the strategic differences between high-service and low-cost. As evidenced by our recent HealthScore numbers regarding growth and earnings at individual credit unions, however, many are failing in their efforts.

Let’s return to Nordstrom and Walmart for just a moment to illustrate why this might be – but let’s forget the legendary stories of Nordstrom service, such as the return of tires to a Nordstrom store. Let’s look instead to the most basic of customer experiences – buying a pair of pants. At Walmart you have a limited selection of pre-hemmed yet inexpensive pants. If they fit you, you are in luck – and you simply pay and leave. If they don’t, you are on your own to have them altered or else you must go to another retailer for a greater degree of “customization.”

According to Nordstrom documentation, however, every Nordstrom store has on-site alterations and tailoring. Buy your pants, and within the same store on the same visit take advantage of the option to have them altered to fit perfectly.

Were Walmart to carry staff to alter and tailor their clothes, they would have to charge more to cover the cost of additional trained labor. They won’t do that because they are all about efficiency and cost reduction. To offer tailor services would be a decision at odds with their very business model and customer value proposition.

Of course, if you want inexpensive pants you won’t often find what you are looking for at Nordstrom. For Nordstrom to offer such limited options, or to require customers take an extra trip to a tailor in order to make Nordstrom clothes fit properly, would be to undermine their business model and customer value proposition.

This idea of a credit union being Nordstrom and Walmart (Nordmart? Walstrom?) speaks to the comment I hear most at credit union planning sessions. It is so difficult to be all things to all people. When credit unions try to do this, when they try to be both Walmart and Nordstrom, they end up with increasing costs, members that aren’t getting what they want (either the best service, or the best price), and a value proposition hard to communicate let alone back up.

Fortunately there is an option. Don’t try! Instead, focus on excellence at delivering within a tightly-defined/focused context and leave everything else to others.

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For a little more perspective on our context philosophy, check our last week’s Chicken Sandwich post.

4 thoughts on “NordMart: The Case of Conflicting Corporate Strategy

  1. Nice post Tom! Trying to be all things to all people leads to mediocracy at best. I always ask people what does your CU do better then the bank down the street. Simple solution… do more of it.

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    1. Thanks Randy! Some of the best-run, most healthy credit unions I have encountered have limited service offerings – but they execute really well. Simple institutions, but very effective at meeting member needs within targeted areas of service.

      I do think saying “no” to things an institution can’t do well is one of the greatest challenges facing today’s credit union leadership. Every time you go to a conference, management school, etc. you hear all about what you should be doing…and that if you aren’t doing that you are doomed to failure. What pressure!

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  2. Tom – this is essentially the concept behind one of my favorite business books The Myth of Excellence. Trying to excel in multiple strategies, especially those that are generally at odds with each other, leads to mediocrity. Successful organizations have realized this and employed sustainable strategies and tactics that support their direction.

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